Infrastructure Insights Video

Valuation of Infrastructure Assets Q4 2023

In our latest Valuation update, Portfolio Manager, Daniel Chu discusses how the forward looking multiples and dividend yields for infrastructure stocks have normalised and are nearing pre-COVID levels, reinforcing our view that valuations remain attractive.


Key Takeaways at a Universe Level Include:

  • Valuations remain attractive on a medium to long-term excess return basis.
  • Forward looking EV/EBITDA multiples and dividend yields have normalised for infrastructure stocks (especially airports and passenger rail) as the traffic and earnings recovery matures.
  • Listed infrastructure continues to provide attractive valuations when compared to unlisted infrastructure (although some unlisted transaction multiples have moderated recently), but with added liquidity and a greater opportunity set.
  • The essential nature of utility cashflows allow for far more predictability in outcomes especially in times of significant economic slowdown.

Key Takeaways at a Portfolio Level Include:

  • Excess return over cost of capital (over 5 years) points to both Infrastructure and Utilities being attractive. Risk/return beginning to tilt in favour of Utilities over Infrastructure.
  • Comments by management of portfolio stocks indicate:
    • Infrastructure Traffic on developed toll roads, commuter rail and airports continue to recover from the pandemic, and in some cases exceed pre-pandemic levels, such as leisure-based airports and select U.S. and EU toll roads. While recession is a potential risk to traffic, management teams generally have not yet seen evidence of a slowdown in forward-looking data. U.S. freight rail companies have seen some softness in their volumes year-to-date and are expected to remain soft near-term as the economy works through an inventory de-stocking cycle.
    • Utilities Relief in global bond yields resulted in improved performance for utilities. Given limited evidence on a significant slowdown in GDP, the utilities continue to struggle from a relative performance perspective. Longer term we remain constructive on the growth prospects due to policy in favour of the energy transition.
    • Renewables Valuations in renewables remain compelling, although longer duration assets (and cash flows) remain sensitive to rising yields. Issues with certain segments of the renewable space have been challenging (for example offshore wind), although we are starting to see fundamentals improve.
    • Energy Infrastructure Cashflow generation from pipelines remains robust due to highly contracted nature of revenue, despite softness in commodity prices.
    • Dividends Transparency of dividends remain high in utilities and are improving in transport infrastructure.

For the complete Valuation Presentation Pack, please contact our Distribution Team.


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